GST on luxury cars: Mercedes, BMW, Audi might see a price drop; Check likely price cuts

Diwali came early for 1.4 billion consumers as the GST Council on Wednesday announced a major tax overhaul, leaving only two slabs and reducing the prices of over 400 items. While essential products will become cheaper under the 'next-gen' reforms, luxury cars have been placed in a 'special slab' attracting a 40% tax rate.

The move will provide relief for high-end vehicles, as the earlier 20-22% compensation cess on luxury cars has been removed. Previously, buyers of premium cars from brands like Mercedes-Benz, Audi, and BMW were paying up to 50% in total taxes. Under the new structure, these vehicles will now face a flat 40% tax, making them more attractive to buyers.

The GST changes are part of the transition to “GST 2.0,” a simplified two-slab system of 5% and 18%, with a special 40% slab reserved for sin and luxury goods. The reform also includes the planned abolition of the compensation cess, expected by October 31, which will simplify compliance for manufacturers and dealers.

Read more: New GST rates list 2025: Full list of items with revised rates effective from Navratri, September 22

Luxury cars were earlier subject to a compensation cess of 20–22% on top of 28% GST, depending on their classification. Under the new structure, these vehicles will now be taxed at a flat 40%, translating into savings of 8–10%.

Possible change in prices of top models

Note: These prices are based on calculations assuming an 10% reduction after moving these cars to the 40% GST slab. The prices are approximate and are based on ex-showroom prices. Check your nearest showroom to understand the changes.

India's luxury car market

Luxury cars currently have a little over 1% market share in India—the lowest among major economies. The country, however, offers ample growth potential in the medium to long-term given it is home to one of the highest number of billionaires worldwide, industry experts told ET.

Read more: GST 2.0 FAQs: Which cars just got cheaper & which ones got costlier? From insurance to gold to cigarettes, all key new price info here




Between 2023 and 2028, India will see the highest increase for any country in the number of ultra-high-net-worth individuals (UHNWIs), with a net worth of $30 million or more, as per Knight Frank's flagship study, 'The Wealth Report 2024'. The number of ultra-rich Indians is expected to surge by 50% to 19,908 in 2028 from 13,263 in 2023. India will be followed by China (47%), Turkiye (42.9%), and Malaysia (35%), according to the report.

How the GST reforms will help India?

The push for higher domestic consumption is part of Modi’s broader strategy to increase India’s self-reliance amid rising protectionism around the world — a trend he’s criticized as economic selfishness. Trump doubled the tariff on Indian goods to 50% last week as a punishment for buying Russian oil.

The GST cuts are a “step in the direction of self-reliance” and will help both consumers and industry, Commerce Minister Piyush Goyal said at an event in New Delhi on Thursday. He also urged the companies to pass on the benefits of lower taxes to consumers.

Citigroup Inc. estimates that the combined 50% tariff poses a 0.6-0.8 percentage point downside risk to India’s annual GDP growth. At 50%, the highest tariff among Asian nations, Indian exporters fear getting decimated and have warned of massive job losses.

Sitharaman said the GST reform wasn’t influenced by the tariff turmoil, and will have a “very positive” impact on India’s GDP.

“We believe GST is not a static situation — when rates come down, buoyancy goes up,” Revenue Secretary Shrivastava said. “We expect people to come out and buy more when taxes are reduced.”